Text Size

FIRST LOOK: SAVVY INVESTORS FEAR THE SEQUESTER — POLITICO’s indefatigable MJ Lee snags an early look at poll results suggesting professional investors are growing convinced the sequester cuts will in fact hit on March 1 and the stock market will take a serious hit as a result. This jives with M.M.’s anecdotal hedge fund manager reporting suggesting pros view the sequester as likely to happen while the broader market seems nonchalant, apparently expecting another last minute Beltway deal.

According to the Potomac Research Group survey, 53 percent of hedge fund, pension fund and money market managers surveyed said they do not believe there will be a deal to avoid the sequester. And 51 percent predicted that with no sequester deal, the Dow would fall by 5 percent or more. The investors’ doubts reflect the gridlock currently gripping Washington over the upcoming fiscal battles — and the potential economic consequences. Read more: http://politico.pro/11OEVeN. Full results: http://goo.gl/uihjM

GEITHNER BOOK DETAILS — POLITICO’s Ben White reports: “Timothy Geithner recently said he was ‘not really the type to sit alone at a desk and write.’ But that’s exactly what the former Treasury secretary plans to do. Geithner is preparing to shop around what could turn into a blockbuster book. He’ll lay out his close-up view of the much-maligned bank bailout, which he claims saved the United States from a second Great Depression and critics say was a no-strings-attached gift to Wall Street.

“Until now, Geithner has not been able to tell his unvarnished version of the story. In on-the-record interviews while in office, he often was restrained in defending the administration’s crisis response despite what seemed like a clear desire to rip into his critics. But the need for political restraint is over, and Geithner could use the book to finally fire back at the many academics and financial reform advocates who claim [TARP] saved the very executives who crashed the economy with reckless bets on toxic mortgage-backed securities and saddled the nation with a deep and painful recession.”

SIGNS BARNETT; COULD GET OVER $500K ADVANCE — “Geithner, who just signed on as a fellow at the Council on Foreign Relations, is being represented by Washington super-lawyer Robert Barnett, who has helped many former government officials translate big-time Washington experience into lucrative speaking and writing careers. … Both Barnett and Geithner declined to comment on details of the book, which is expected to come out next year. A publishing source said it could easily command an advance of $500,000 or more and will most likely generate a bidding war among publishers,” driving the price up much higher. http://goo.gl/HNFCS

NO ‘SCORE SETTLING’ — A source familiar with Geithner’s thinking said while the book will look to respond to what Geithner views as myths and misperceptions surrounding the bailout, it won’t be intended to settle scores with critics. M.M. remains unsure what the operative difference is between these two things. But there you have it.

GEITHNER BOOK WISH LIST — Better Markets CEO Dennis Kelleher, a persistent critic of the Geithner Treasury, emails M.M.: “There are 3 areas I hope he addresses honestly, openly, completely and in detail, which would mean it would be a very unusual Washington book. First, his actions when he was head of the New York Fed in the years leading up to the crisis and until he became Treasury secretary. Second, his role in bailing out Wall Street, the auto companies and virtually everyone else except notably homeowners. Third, his role in shaping the Dodd-Frank financial reform law and its implementation after passage. ….

“[Geithner should] lay out the case why he did not/could not impose accountability when bailing out Wall Street. He didn’t shy from imposing very tough conditions on Main Street when assisting the auto companies, their executives and their blue collar workforce. Why not for Wall Street banks and executives? … What exactly did he do to supervise Citigroup when at the Fed and when the president reportedly wanted to let it fail? … History will look back and be scrutinizing this entire time. He should write a book that will stand the test of time and have enduring value, even if it is self-critical.”

LEW HEARING SET FOR NEXT WEDNESDAY — Per release: “Senate Finance Committee Chairman Max Baucus (D-Mont.) will convene a hearing on Wednesday, Feb. 13 to consider the nomination of White House Chief of Staff Jacob "Jack" Lew to be the next Treasury secretary. The hearing will take place at 10 a.m. … in Room 215 of the Dirksen Senate Office Building. Baucus will question Lew about his experience, his views on fiscal policy and ideas for spurring economic growth.”

NEW THIS A.M.: S&P ANALYST IDENTIFIED — Bloomberg’s Zeke Faux reports on the S&P analyst, ‘Executive H,’ who is at the center of the U.S. government lawsuit against the ratings agency. Faux reports that “the analyst is Frank Raiter, aged 65, who was a former managing director for residential mortgage-backed securities at S&P. Raiter was ignored by his bosses when he warned that the agency should change its model to make banks include more protection in their bonds. Raiter, who took early retirement and is now a farmer in rural Virginia, says he hasn't heard from the Department of Justice since 2010 and hopes he won't have to testify in the case.”

JOHN BRENNAN’S COLORFUL PRIVATE SECTOR TOUR — CNBC’s Eamon Javers reports: “John Brennan, President [Barack] Obama's nominee to be director of the CIA, like many government employees took a three-year turn through the private sector before rejoining the administration — but it was nothing like the blandly profitable corporate stints of other federal bureaucrats. When Brennan went to work for a private intelligence contractor called The Analysis Corporation, he entered a murky milieu of transnational private spy firms with taxpayer-fueled profits.

“And he found himself working for a Ferrari-driving foreign boss who made much of his money on the dangerous streets of Iraq. In that world, Brennan was forced to deal with a situation he would never have faced in his earlier days at the CIA: Brennan's corporate parent was looking for lucrative contracts from Chinese state-owned companies at the same time Brennan's unit worked on sensitive U.S. intelligence issues in Washington.” http://goo.gl/MqoaT

THIS MORNING ON POLITICO PRO FINANCE -- Jonathan Allen and Jon Prior on what happened at the first House Financial Services hearing after Monday’s civility dinner. … Zachary Warmbrodt on the latest Libor settlement. … Kelsey Snell on how industries are trying to carve some of their profits out of the carried interest debate. … To learn more about Pro's subscriber-only coverage -- and to get Morning Money every day before 6 a.m. -- please contact Pro Services at (703) 341-4600 or info@politicopro.com.

GOOD THURSDAY MORNING — M.M. is on CNBC’s Squawk Box this morning from 6 a.m. to 7 a.m. for those of you reading the early version. For everyone else, look for our wit and wisdom on the CNBC website, should you care to. As always, send your tips and comments to bwhite@politico.com and follow on Twitter: @morningmoneyben and @POLITICOPro.

MUST-SEE TV: RUBIN ON SQUAWK AT 8 A.M. — Former Treasury Secretary Robert Rubin will be on Squawk starting at 8 a.m. Rubin will discuss his thoughts on the state of the economy, the debt threat, tax reform, the nomination of Jack Lew to be Treasury secretary, financial regulation, whether big banks should be broken up and other topics.

** Presented by Promontory: Post-crisis legislation aimed at financial services companies has dominated headlines, but regulators’ priorities play just as important a role in determining the future of banking. A Sightlines InFocus looks at how heightened expectations for risk management are setting the long-term direction of bank supervision. http://bit.ly/VUBoqb **

DRIVING THE DAY — Initial jobless claims at 8:30 a.m. EST expected to dip to 360,000 from 368,000 … Productivity also at 8:30 a.m. expected to show a decline of 1.4 percent with unit labor costs up 2.9 percent … Consumer credit at 3 p.m. EST expected to rise $14 billion.

PRIVATE EQUITY DEFENDS CARRIED INTEREST — The Private Equity Growth Capital Council released a new whiteboard video the group says explains “just what carried interest is, how it works and why it is appropriately taxed as a capital gain.” Video: http://goo.gl/IguG9

INSIDE THE RBS LIBOR SCANDAL — FT’s Kara Scannell and Brooke Masters: “A senior yen trader at Royal Bank of Scotland made a revealing observation in mid-2007 about the bank panel that sets the borrowing rate in Japanese yen. ‘The jpy libor is a cartel now. its just amazing how libor fixing can make you that much money,’ the senior trader wrote in an instant message to traders at two other banks. … On Wednesday, RBS admitted to manipulating the London Interbank Offered Rate in yen and Swiss franc between 2006 to 2010 and agreed to pay £390 million to the CFTC, U.S. Department of Justice and the U.K.’s Financial Services Authority. …

“According to the FSA, 21 RBS employees, including one manager, were involved in the ‘misconduct.’ … The vast majority of rate requests involved rates for Japanese yen or Swiss francs, although regulators also documented five, apparently unsuccessful, efforts to influence the U.S. dollar rates. RBS settled allegations it manipulated other rates, but the identity was redacted from the public filings citing an ongoing investigation. The attempts at manipulation within RBS were so casual that one trader joked that he moved his fixes day to day as much as a prostitute draws up and down her underwear.” http://goo.gl/lbwCN

S&P HIRES TOP DEFENSE LAWYER — Reuters’s Karen Freifeld: “Standard & Poor's has hired John Keker, one of the country's top white-collar defense attorneys, to help fight a $5 billion lawsuit brought by the U.S. government this week. Keker, who is based in San Francisco and has represented everyone from cyclist Lance Armstrong to Enron's Andrew Fastow, was hired at the recommendation of Floyd Abrams, a prominent New York attorney who also represents the ratings firm. … Abrams, a noted First Amendment lawyer who has defended S&P in dozens of lawsuits over its ratings, said this week that freedom of speech may not be a defense in this case.

“In an interview with Reuters on Wednesday, Abrams said bringing Keker onto the team was an indication that ‘we are going to be more than ready, if necessary, to have a trial.’ Keker, known as a combative defense attorney, won credit from legal experts in 2006 when Fastow, considered the mastermind of Enron's fraud, was sentenced to only six years in prison. Keker also helped Armstrong fend off a U.S. Justice Department investigation into doping last year.” http://goo.gl/Q1SXI

FISCAL FLY-AROUND –

SEQUESTER ODDS — Chris Krueger, Guggenheim Washington Research Group: “Congress is very likely to miss the first deadline of March 1 and some version of sequester will begin. We believe that there is a slightly better than 50 percent chance that a sequester punt will be cobbled together around the March 27 deadline that will soften the blow of sequester and keep the government open for at least a month. The cost of replacing the FY13 sequester is ~$86 billion, which the administration is demanding be offset with a 1:1 revenue-spending cut ratio. The Congressional Budget Office (CBO) estimates that a full sequester would lead to a 0.7 percent decline in GDP growth this year.”

GOP LOOKS FOR WAY OUT — POLITICO’s Jake Sherman: “One thing is becoming clear: Republicans want to find a way out of the sequester, despite some loud rhetoric to the contrary. Top House Republican aides privately concede that the politics of allowing the cuts to hit — layoffs, furloughs and a stalled economic recovery — are tough to stomach and they would prefer to make a deal. … Speaker John Boehner signaled the growing GOP discomfort at his weekly news conference: ‘Let me make clear: I don’t like the sequester.’ Boehner’s words are a sign that, while some Republicans are comfortable with steep and immediate reductions in federal spending, leadership would prefer to avoid them. …

“A top GOP leadership aide, speaking anonymously to divulge internal thinking, laid out 10 options that the House GOP leadership would be willing to accept, along with savings estimates developed by GOP policy aides, in order to avoid the sequester. But any deal to avoid it comes with a major caveat: If Boehner doesn’t get the cuts he’s looking for, he’s more than willing to let the sequester go into effect. … The Republican list of possible ways to replace the sequester and implement spending cuts includes a variety of proposals that have been raised repeatedly in previous fiscal debates over the debt ceiling and the fiscal cliff. They also don’t include additional revenue, which Obama has insisted on.” http://goo.gl/8nQ2i

DEMS SET THEIR POPULIST STRATEGY — NYT’s Jonathan Weisman: “Congressional Democrats, sensing a shift in political momentum, said Wednesday that they were closing in on legislation to temporarily head off deep across-the-board spending cuts, convinced that once federal furloughs and layoffs begin next month, political pressure on Republicans to accept more tax increases will become irresistible. … Democrats want a temporary reprieve from those cuts, financed by a mix of spending cuts and tax loophole closings that they believe will rally public support. …

“A presentation by Sen. Patty Murray of Washington, who spoke along with Sens. Max Baucus of Montana and Barbara Mikulski of Maryland, ran through the huge income gains of the richest 1 percent, amid rising poverty and stagnating middle-class incomes. … With the clock ticking and President Obama calling for some action, both parties are showing some cracks in their resolve. Some Republicans with large military installations in their districts said they could support a postponement in the military cuts while negotiations continued.” http://goo.gl/m18Y5

ALSO FOR YOUR RADAR –

UNIONS LOOK TO POT SHOPS — Reuters’s Samuel P. Jacobs and Alex Dobuzinskis: “The medical marijuana shop next to a tattoo parlor on a busy street in Los Angeles looks much like hundreds of other pot dispensaries that dot the city. Except for one thing: On the glass door — under a green cross signaling that cannabis can be bought there for medical purposes — is a sticker for the United Food and Commercial Workers union (UFCW), the nation's largest retail union. The dispensary, the Venice Beach Care Center, is one of three medical marijuana dispensaries in Los Angeles that are staffed by dues-paying union members. Another 49 in the city plan to enter into labor agreements with the UFCW this year. … Together, the dispensaries are a symbol of the growing bond between the nascent medical marijuana industry and struggling labor unions.” http://goo.gl/BA0xQ

TREASURY HITS IRAN WITH MORE SANCTIONS — Business Insider: “The U.S. stepped up the pressure against the Iranian government Wednesday, introducing new sanctions in response to its nuclear program and targeting institutions it says are censoring political dissent. The Department of Treasury, working with Department of State, expanded the scope of sanctionable transactions from Iranian banking institutions, and are restricting the use of oil revenue held in foreign financial institutions. The new sanctions mean that Iranian oil revenue will be effectively ‘locked up,’ sharply restricting Iran's ability to repatriate or move funds across jurisdictions. Exceptions are still being made for humanitarian items, such as food, medicine, and medical devices.” http://goo.gl/74zTN

** Presented by Promontory, the premier strategy, risk management, regulatory, and compliance consulting firm working with the financial services industry. Former Comptroller of the Currency Eugene A. Ludwig founded Promontory in 2001. Today, Promontory has 15 offices in 11 countries spanning North America, Europe, Asia, Australia, and the Middle East. Financial institutions and regulators look to Promontory to help develop and enhance compliance, governance, and risk-management programs and controls, as well as to provide the solutions to implement business strategies that meet regulatory expectations.

Our combination of deep industry and regulatory expertise sets us apart from other consulting firms. Read what Promontory’s experts have to say on topics that matter most to the financial services industry by signing up for Sightlines. Featured in this issue: cybersecurity, capital requirements, global insurance regulation, managing corruption risks, and managing customer complaints. http://bit.ly/WxkCye **